Financial Crime World

Lack of Clarity on Know-Your-Customer Requirements for Mobile Money Merchants

Uncertainty Surrounds Regulation of Informal, Semi-Formal, and Formal Mobile Money Merchants in Uganda

Kampala, Uganda - A new report by the United Nations Capital Development Fund (UNCDF) highlights the challenges faced by schools, churches, mosques, and other non-profit entities that wish to accept mobile money payments due to a lack of clarity on know-your-customer (KYC) requirements.

Current Situation

According to the MM Guidelines, 2013, there are no specific KYC requirements for non-profit entities such as schools, churches, mosques, and others. However, the AML Regulations, 2015 and the FI (AML) Regulations, 2010 have clear KYC requirements that could apply, but it does not appear that they are being enforced currently.

Challenges Faced

The report found that individual bank accounts remain a major challenge, with some banks continuing to follow the FI (AML) Regulations, 2010 in practice. Additionally, there is no explicit provision for refugees, although banks and mobile money service providers have interpreted the regulations to allow them to accept refugee ID cards as sufficient proof of identity.

Onboarding Informal and Semi-Formal Merchants and Agents

The report highlights the difficulty in onboarding informal and semi-formal merchants and agents, with the majority of Ugandan businesses being informal and unable to meet the requirements. The Bank of Uganda has expressed willingness to consider proposals for addressing these challenges, including the application of simplified due diligence to informal and semi-formal mobile money merchants.

Recommendations

To foster growth and uptake of digital financial services (DFS), sector stakeholders are advised to:

  • Maximize the positive impact of efforts to improve identification of Ugandan citizens and refugees.
  • Promote the development of a tiered regulatory framework for merchant and agent acquisition.
  • Conduct sector-specific risk assessments to better understand DFS risks and enable the development of proportionate AML/ CFT approaches.

Conclusion

The lack of clarity on KYC requirements for mobile money merchants is hindering the growth and uptake of DFS in Uganda. Sector stakeholders must work together to address these challenges and develop a more effective regulatory framework that balances risk management with the need for financial inclusion.

Recommendations:

  1. Maximize the positive impact of efforts to improve identification of Ugandan citizens and refugees.
  2. Promote the development of a tiered regulatory framework for merchant and agent acquisition.
  3. Conduct sector-specific risk assessments to better understand DFS risks and enable the development of proportionate AML/ CFT approaches.